The End of National Economies?

I believe one of the biggest things that will occur in this century is the diminution of theories of national economics.

Instead, there will be an increasing need over the century for a new field of global economics. Along with theory, will come a demand for international agencies to exercise more and more coordination among national economies in order to serve the interests of all countries.

What’s happening in Greece and Argentina right now suggests that this should happen—sooner rather than later. Each of these countries is in conflict with the national law of a foreign country. Greece is in conflict with German law; Argentina with US law.

The Greek Dilemma

When the financial crisis of 2008 began, Greece was hit hard. The country suffered from increasing debt until 2014 when the economy began growing again. However, Greece’s public debt grew so large that the International Monetary Bank (IMF), European Central Bank (ECB), and the European Union (EU), (called the ‘troika’) began freezing loans to Greece because it looked like the country would become insolvent.

The European Central Bank has kept Greece afloat with weekly emergency liquidity assistance, while the IMF has been meeting with officials of the newly-elected Greek government to work out a schedule of payments by Greece, the soonest being Euro 450 million due today, April 9. Christine Lagarde, IMF head, has been expressing confidence Greece will meet its obligations and have a 3 percent growth of GDP next year.

However, many economists feel Greece won’t be able to achieve 3 percent growth. One is Alberto Gallo of the Royal Bank of Scotland. He believes Greek austerity is impossible with 50% of young Greeks unemployed. He thinks Greece will instead end up with high debt-to GDP levels.

Gallo reasons that the crisis occurred because the European Central Bank by law can’t monetize debt [i.e. turn debt into assets]; the Eurozone has no fiscal union [so rich countries can’t help poorer ones]; and the EU lacks flexible debt markets [for Greeks to sell their debt to].

However, the real problem in the Eurozone isn’t the amount of debt that Greece has or will incur; it is the timing of the repayment of that debt. The problems in Greece are being exacerbated by Germany. The Germans have a huge export surplus. They could afford to help out Greece until it gets fully back on its feet. But that isn’t going to happen! Why?

These creditors, who brought suit in a New York State court against Argentina, are large hedge funds. They will not accept the deal that 93 percent of other bondholders agreed to with the Argentinian government during debt restructuring in 2005 and 2010. Fernandez calls these Wall Street holdout creditors, organized by US billionaire Paul Singer of NML Capital, “vulture funds”.

The problem over Argentinian debt has also been the timing of repayment. Last June the U.S. Supreme Court supported the New York State Court’s verdict by refusing to hear Argentina’s request for an appeal. The Supreme Court, also ruling over a foreign power, ordered eparately that Argentina’s debt must be paid in two weeks. Fernandez said Argentina couldn’t pay by then, and it didn’t.

Like Greece, Argentina immediately had holds placed on its funds by big international banks.

Other countries audited or advised by the Committee about their sovereign debt include Equador, Paraguay and Venezuela. The committee hopes to put pressure on developed countries who are driving lesser developed countries into bankruptcy.

Other countries are legitimately frustrated when US officials ask them to adjust their policies — then insist that American state regulators, independent agencies and far-reaching judicial actions are beyond their [US] control. This is especially true when many foreign businesses assert that US actions raise real rule of law problems.

If we want to fix international economic crises, we cannot have wealthier creditor nations unilaterally making national law that pushes poorer nations into bankrupty.